Contracted out Final Salary / Reduced Class D NI Contributions whilst overseas

Lawrence631

I was in a contracted out final salary pension scheme for over 16 years. During this period I undertook an temporary assignment overseas. My Class D National Insurance contributions were significantly reduced (to almost zero) during the assignment. This reduction is NI contributions has resulting in an associated reduction in my GMP. I queried the reduction with my pension provided but they were unable to assist as they did not have any salary records.  Does anyone know if such reductions in NI contributions in these circumstances were permitted when contributing to a contracted out pension?

Marcon

Did your GDPR request get you anything useful in 2019: https://forums.moneysavingexpert.com/discussion/6050223/reduced-ni-contributions-whilst-working-overseas-db-pension#latest

I think the answers in that thread remain correct - you couldn't have voluntarily paid more class D NI to bolster your GMP, not least because the rules of the scheme are unlikely to provide for such an eventuality.

hyubh

Lawrence631 said:

I was in a contracted out final salary pension scheme for over 16 years. During this period I undertook an 18 month temporary assignment overseas. My Class D National Insurance contributions were significantly reduced (to almost zero) during the last six months of the assignment. This reduction is NI contributions has resulting in an associated reduction in my GMP. I queried the reduction with my pension provided but they were unable to assist as they did not have any salary records beyond 7 years ago.  Does anyone know if such reductions in NI contributions in these circumstances were permitted when contributing to a contracted out pension?

Reading your 2019 version of the question, you claimed an income tax refund from HMRC for the period. Clearly if you weren't paying UK income tax, then you didn't have NI'able pay either. Given GMP on the termination of contracted out employment is calculated from NI conts/earnings, ergo your GMP at exit was lower than otherwise. The fact you paid scheme contributions and accrued scheme pension for the period is irrelevant.

However, on exit, this would have meant more of your total pension was 'excess' than otherwise: your scheme pension would have been calculated however the scheme pension was calculated, then the excess derived as simply your total basic pension less your GMP. In other words, less GMP doesn't imply less pension generally.

Nevertheless, from exit your GMP and excess would likely have 'revalued' then probably 'increased' differently in payment too. So the split is important. But even then, whether it was better for more (or less) of your pension at exit to have been GMP (and therefore, for less [or more] of it to have been excess) is completely dependent on how the scheme chose to revalue and increase your retrospective splits. In fact, it's perfectly possible for the relative benefit to change over time.

hyubh

Lawrence631 said:

Thanks. My GMP is indexed at 6.25% so any increase in GMP is currently in my favour. 

OK, so fixed rate GMP revaluation and CPI max 5% for the excess? What about increases in payment...?

Should have noted before, for the GMP/excess split at exit to be different, this period of overseas working will need to have been before April 1997. Since from then, no one accrued any more GMP anyway.